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Electronic Arts Inc. Just Taught the Industry a Key Lesson

How far is too far when it comes to monetizing a video game? That’s a question Electronic Arts Inc. (NASDAQ:EA) may have just answered — the hard way. EA stock didn’t get hit too hard as a long-brewing matter finally came to a head. But video-gamers drew a key line in the sand just the same.

The thing is it’s not a line in the sand that applies just to Electronic Arts and owners of EA stock. Rivals like Activision Blizzard, Inc. (NASDAQ:ATVI), Nintendo Co., Ltd (ADR) (OTCMKTS:NTDOY) and even mobile-game-focused Zynga Inc (NASDAQ:ZNGA) would be wise to recognize a key part of their business models has its limits.

In the old days, every aspect of a video game was contained on a cartridge. But modern games are played on consoles that connect to the internet. They are complex and game play can be altered by downloading different playable characters, new weapons and helpful maps. Sometimes this “loot” can be earned by successfully playing the game. But more and more, these weapons and players can be purchased for a few dollars of real money.

The amount of money or time required to secure this loot has just officially gotten out of hand. Case in point: To play as popular villain Darth Vader in Star Wars Battlefront 2 (which is currently wrapping up its customer testing) would take an estimated 40 to 80 hours of play, or $80 to unlock the Sith lord.

EA Learns Lesson

That is, before video gamers on Reddit revolted. They made a record-breaking number of complaints to EA. Consequently, the game company has lowered the hurdles to unlock some of its key playable characters by as much as 75%.

To be fair, Electronic Arts wasn’t the first to run into this kind of cold reception, though this may have been the highest-profile game to do so. (It’s Star Wars, for cryin’ out loud.) In September, Destiny 2‘s publisher Activision Blizzard suffered a similar backlash for squeezing players too much for simple things like changing the color of clothing worn by a playable character. That frustration may have pushed the gaming community to a tipping point. EA simply gave the gaming community that final nudge. And, as they say, you can’t unscramble an egg. Gamers now know they wield at least a little power when it comes to pricing these in-app purchases.

As for Electronic Arts, it appears to have learned its lesson pretty quickly. It’s unlikely future games will be anywhere near as bold when it comes to in-game purchases. The company knows all eyes are on it. To that end, it’s not like EA stock as a pick better off avoided simply because of the gaffe.

On the other hand, with the attitude towards in-app spending now shifting, the growth these companies had been enjoying may have just hit a headwind. And it matters big time.

Bottom Line for EA Stock

It’s a bit tough to ferret out from the company’s official reports, but for its fiscal 2017 ending in March of this year, EA’s biggest single source of revenue was “extra content,” or purchases made to make its games even more fun to owners. All told, $1.3 billion of that year’s top line of $4.8 billion came from the sales of extra digital content above and beyond the cost of purchasing the game itself. The same reality is true of Zynga and Activision Blizzard, albeit to varying degrees.

None of this is to suggest in-game micro-transactions will lose their place as each publisher’s breadwinner. It does suggest, however, that all interested parties would be wise to not push their luck any further as players start to push back.

As of this writing, James Brumley did not hold a position in any of the aforementioned securities. You can follow him on Twitter.